_____________________________________________________(Former
name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.

Adjustments to
reconcile net income to net cash provided by operating activities:

(Reverse) provide provision for losses on accounts
receivable

(866,161

)

438,272

Depreciation

2,471,967

1,524,276

Amortization of intangible assets and land use
rights

456,221

499,657

Loss(gain) on disposal of property,
plant and equipment, net

11,074

(5,037

)

Provision for obsolete inventories

266,658

23,835

Change in fair value of contingent
consideration

(1,178,375

)

(795,097

)

Change in deferred income tax

(113,687

)

83,458

Impairment of long-term investments

548,845

-

Imputed interests in relation to shareholder's loan

62,500

-

Changes in operating
assets and liabilities, net of effects of business acquisitions

Decrease(increase) in restricted cash

1,133,647

(456,894

)

Decrease(increase) in accounts
receivable

139,635

(10,152,521

)

(Increase) decrease in advances to suppliers

(3,801,954

)

3,484,877

Increase in other receivables and
prepaid expenses

(1,444,804

)

(1,452,006

)

Increase in inventories

(8,377,510

)

(5,890,035

)

Increase(decrease) in accounts
payable

4,853,698

(3,236,934

)

Increase (decrease) in advances from customers

107,117

(41,873

)

Increase in amounts due to related
parties

1,426,360

844,549

Decrease in accrued expenses and other liabilities

(1,751,438

)

(1,648,862

)

Decrease in income tax payable

(137,684

)

(952,931

)

Net cash provided by/( used in) operating
activities

1,900,164

(11,341,339

)

INVESTING ACTIVITIES

Purchase of land use rights

-

(384,187

)

Proceeds from sale of short-term investments

-

30,797

Purchases of property, plant and
equipment

(334,364

)

(532,107

)

Capitalized and purchased software development costs

(441,182

)

(135,962

)

Deposit for software purchase

(2,237,340

)

(3,207,441

)

Net cash (used in) investing activities

(3,012,886

)

(4,228,900

)

FINANCING ACTIVITIES

Borrowings under short-term loans

27,350,005

8,250,529

Borrowings from shareholders loan

-

6,026,550

Borrowings under long-term loans

-

4,018,210

Repayment of short-term loans

(27,411,314

)

(10,872,150

)

Repayment of long-term loans

(570,750

)

(4,018,210

)

Issued common stock

-

9,611,811

Increase in restricted cash in
relation to bank borrowings

(827,683

)

-

Net cash (used in)/ provided by financing
activities

(1,459,742

)

13,016,740

Effect of exchange rate changes on cash and cash
equivalents

86,446

79,846

NET DECREASE IN CASH AND CASH
EQUIVALENTS

(2,486,018

)

(2,473,653

)

CASH AND CASH EQUIVALENTS, BEGINNING

18,166,857

13,478,633

CASH AND CASH EQUIVALENTS,
ENDING

$

15,680,839

$

11,004,980

Supplemental disclosure of cash
flow information:

Cash paid during the period

Income taxes

$

1,342,979

$

2,041,708

Interest paid

$

658,460

$

168,478

Supplemental disclosure of significant non-cash
transactions:

On February 8, 2011, the Company granted eligible employees a
total of 250,000 shares of the Company's common stock as compensation under the
China Information Technology, Inc. 2007 Equity Incentive Plan. The fair value of
these shares of approximately $1.1 million, based on the quoted market price,
was accrued as of December 31, 2010 as the compensation was for services
provided in 2010.

The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements

The operating results of Bocom, Geo, Zhongtian and Huipu have
been included in the Companys consolidated financial statements since February
1, 2008, April 1, 2008, November 1, 2008, and November 1, 2009, their respective
acquisition dates.

The interim condensed consolidated financial statements
included herein, presented in accordance with United States generally accepted
accounting principles and stated in US dollars, have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These statements reflect all
adjustments, consisting of normal recurring adjustments, which, in the opinion
of management, are necessary for fair presentation of the information contained
therein. The condensed consolidated statement of operations for the three months
ended March 31, 2011 is not necessarily indicative of the results that may be
expected for the entire year ending December 31, 2011. It is suggested that
these interim consolidated financial statements be read in conjunction with the
financial statements of the Company and related notes thereto included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2010 and
notes thereto. The Company follows the same accounting policies in the
preparation of interim reports.

The condensed consolidated financial statements of the Company
have been prepared in accordance with U.S. generally accepted accounting
principles. The condensed consolidated financial statements include the accounts
of the Company, its subsidiaries and its VIE for which the Company is the
primary beneficiary. All significant intercompany accounts and transactions have
been eliminated in consolidation.

(b) Foreign Currency Translation

The functional currency of the US and British Virgin Islands
(BVI) companies is the United States dollars. The functional currency of the
Companys Hong Kong subsidiaries is the Hong Kong dollars.

The functional currency of the Companys wholly-owned PRC
subsidiaries and its VIE is the Chinese Renminbi Yuan, (RMB). RMB is not
freely convertible into foreign currencies. The Companys PRC subsidiaries and
their VIEs financial statements are maintained in the functional currency.
Monetary assets and liabilities denominated in currencies other than the
functional currency are translated into the functional currency at rates of
exchange prevailing at the balance sheet date. Transactions denominated in
currencies other than the functional currency are translated into the functional
currency at the exchange rates prevailing at the dates of the transactions.
Exchange gains or losses arising from foreign currency transactions are included
in the determination of net income for the respective periods.

For financial reporting purposes, the financial statements of
the Company have been translated into United States dollars. Assets and
liabilities are translated at exchange rates at the balance sheet dates and
revenue and expenses are translated at average exchange rates, and equity is
translated at historical exchange rates. Any resulting translation adjustments
are not included in determining net income but are included in foreign exchange
adjustment to other comprehensive income, a component of equity.

Revenues from hardware products are recognized only when
persuasive evidence of an arrangement exists, delivery has occurred and upon
receipt of customers' acceptance, the price to the customer is fixed or
determinable in accordance with the contract, and collectability is reasonably
assured.

Software revenues are generated from fixed-price contracts
which include the development of software products, and services to customize
such software to meet customers' needs. Generally, when the services are
determined to be essential to the functionality of the delivered software,
revenue is recognized using the percentage of completion method of accounting in
accordance with FASB ASC 605-35. The percentage of completion for each contract
is estimated based on the ratio of direct labor hours incurred to total
estimated direct labor hours. The Company provides post contract support (PCS),
which includes telephone technical support, that is not essential to the
functionality of the software. Although vendor-specific objective evidence does
not exist for PCS, because (1) the PCS fees are included in the total contract
amount, (2) the PCS service period is for less than one year, (3) the estimated
cost of providing PCS is not significant, and (4) unspecified upgrades
enhancements offered are minimal and infrequent; the Company recognizes PCS
revenue together with the initial fee after delivery and customer acceptance of
the software products.

System integration revenues are generated from fixed-price
contracts which provide for software development and hardware integration, which
involves more than minor modifications to the functionality of the software and
hardware products. Accordingly, system integration revenues are accounted for in
accordance with FASB ASC 605-35, using the percentage of completion method of
accounting. The percentage of completion for each contract is estimated based on
the ratio of costs incurred to total estimated costs. Contract periods are
usually less than six months, and typical contract periods for PCS are 12
months.

System integration projects are billed in accordance with
contract terms, which typically require partial payment at the signing of the
contract, at delivery and customer acceptance dates, with the remainder due
within a stated period of time not exceeding 12 months. Occasionally, the
Company enters into contracts which allow a percentage of the total contract
price to be paid one to three years after completion of the system integration
project. Revenues on these extended payments are recognized upon completion of
the terms specified in the contract and when collectability is reasonably
assured.

No rights of return are allowed except for non-conforming
products, which have been insignificant based on historical experiences. If
non-conforming products are returned due to software issues, the Company will
provide upgrades or additional customization to suit customers' needs. In cases
where non-conformity is a result of integrated hardware, the Company returns the
hardware to the original vendor for replacement.

Unbilled accounts receivable consist of estimated future
billings for work performed but not yet invoiced to the customer. Unbilled
accounts receivable are generally invoiced within one year of completion of the
work performed. Changes in estimates for revenues, costs and profits are
recognized in the period in which they are determinable. When the Company's
estimates indicate that the entire contract will be performed at a loss, a
provision for the entire loss is recorded in the current accounting period.

(d) Treasury Stock

The Company repurchases its common stock from time to time in
the open market and holds such shares as treasury stock. The Company applies the
cost method and presents the cost to repurchase such shares as a reduction in
shareholders equity. During the period, the Company did not repurchase shares
of common stock.

In October 2009, the FASB issued a new accounting standard
which provides guidance for arrangements with multiple deliverables.
Specifically, the new standard requires an entity to allocate consideration at
the inception of an arrangement to all of its deliverables based on their
relative selling prices. In the absence of the vendor-specific objective
evidence or third-party evidence of the selling prices, consideration must be
allocated to the deliverables based on managements best estimate of the selling
prices. In addition, the new standard eliminates the use of the residual method
of allocation. In October 2009, the FASB also issued a new accounting standard
which changes revenue recognition for tangible products containing software and
hardware elements. Specifically, tangible products containing software and
hardware that function together to deliver the tangible products essential
functionality are scoped out of the existing software revenue recognition
guidance and will be accounted for under the multiple-element arrangements
revenue recognition guidance discussed above. Both standards were effective for
us beginning on January 1, 2011. The adoption of this standard did not have a
material impact on our consolidated financial statements.

Basic earnings per share are computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock, or resulted in the issuance of
common stock that shared in the earnings of the entity. For purposes of the
computation of net income per share, shares issued in connection with
acquisitions that are returnable are considered contingently returnable shares
under FASB ASC 260, although classified as issued and outstanding, are not
included in the basic weighted average number of shares until all necessary
conditions are met that no longer cause the shares to be contingently
returnable. These contingently returnable shares are included in the diluted
weighted average number of shares as of the beginning of the period in which the
conditions were satisfied (or as of the date of the agreement, if later).

Management has estimated that the carrying amounts of
non-related party financial instruments approximate their fair values due to
their short-term maturities. The fair value of the amount due from (to) related
parties is not practicable to estimate due to the related party nature of the
underlying transactions.

Fair Value Accounting

FASB ASC 820-10 establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). As required by
FASB ASC 820-10, assets are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement. The three
levels of the fair value hierarchy under FASB ASC 820-10 are described below:

Level1

Unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted assets or
liabilities;

Level2

Quoted prices in markets that are not active,
or inputs that are observable, either directly or indirectly, for
substantially the full term of the asset or liability; and

Level3

Prices or valuation techniques that require inputs that
are both significant to the fair value measurement and unobservable
(supported by little or no market activity).

As at March 31, 2011 and December 31, 2010, the contingent
consideration of the Companys acquisition of Huipu was measured at fair values
using level 3 inputs.

The Company is the primary beneficiary of iASPEC, pursuant to
the Management Service Agreement (MSA), and iASPEC qualifies as a variable
interest entity of the Company. Accordingly, the assets and liabilities and
revenues and expenses of iASPEC have been included in the accompanying
consolidated financial statements.

In order to facilitate iASPECs expansion and also to provide
financing for iASPEC to complete the acquisition of Geo, the Company advanced
RMB 38 million (approximately $5.4 million) to iASPEC in two installments on
November 20, 2007 and May 8, 2008, respectively, to increase iASPECs registered
capital. In order to comply with PRC laws and regulations, the advance was made
to Mr. Lin, iASPECs then majority shareholder, who, upon the authority and
direction of the Board of Directors, forwarded the funds to iASPEC. The Company
has recorded the advance of these funds as an interest-free loan to iASPEC,
which was eliminated against additional capital of iASPEC in consolidation. The
increase in iASPECs registered capital does not affect ISTs exclusive option
to purchase iASPECs assets and shares under the MSA.

For the three months ended March 31, 2011 and 2010, net loss of
128,278 (income $183,594 from iASPEC and loss of $311,872 from Geo), income
$110,819 ($134,798 from iASPEC and loss of 23,979 from Geo), respectively, was
attributable to non-controlling interest in the consolidated statements of
income of the Company.

At March 31, 2011, the consolidation of iASPEC and Geo,
resulted in an increase in assets of approximately $76.2 million, an increase in
liabilities (consisting primarily of accounts payable and short-term bank loans)
of approximately $28.6 million, and an increase in non-controlling interest of
approximately $18.4 million, and for the three months ended March 31, 2011 and
2010 the consolidation resulted in an increase in net income attributable to
parent company of approximately $3.5 million and $2.6 million, respectively.

As of March 31, 2011 and December 31, 2010, amount due from
(to) related parties consists of:

March 31,

December 31,

2011

2010

(Unaudited)

Due from related companies

-
Xiamen Yili Geo Information Technology Co., Ltd.

$

152,318

$

137,289

- Shenzhen Kewen Information Technology Co., Ltd.

113,151

193,587

265,469

330,876

Due to related companies

- Shenzhen Information Security
Investment and Development Co., Ltd.

2,076,720

697,820

- Wuhan Geo Navigation and
Communication Technology Co., Ltd.

599,130

596,046

$

2,675,850

$

1,293,866

Due to related parties, long-term portion

- Shareholders

$

5,013,647

$

5,014,949

Due from related companies, current portion

Approximately 8% of Xiamen Yili Geo Information Technology Co.,
Ltd. (Yili) is owned by Geo. The balance consists of accounts receivable from
sales.

Shenzhen Kewen Information Technology Co., Ltd. (Kewen) is a
private company owned by a member of the senior management of Zhongtian. The
balance due from Kewen primarily consists of accounts receivable from sales.

Shenzhen Information Security Investment and Development Co.,
Ltd. (ISID) is a company under the control of Mr Lin. The balance due to ISID
mainly represents short-term loans and advances from ISID of $1.5 million and $
0.6 million, respectively. Short -term loans have an interest rate at PBOC rate,
and advances are non-interest bearing and due on demand. Interest expenses paid
to ISID during the three months ended 31 March 2011 and 2010 were $16,975 and
zero, respectively.

Approximately 9% of Wuhan Geo Navigation and Communication
Technology Co., Ltd. (Geo Navigation) is owned by Geo. The balance due to Geo
Navigation represents advances from Geo Navigation to Geo. These advances are
non-interest bearing and due on demand.

Due to related parties, long-term portion

The balance due to shareholder represents the personal loans
from Mr. Jianghuai Lin, the CEO of the Company, to the Company.

On January 14, 2010, Mr. Lin loaned the Company a total of $5
million from the proceeds of the sale of his shares for use for general
corporate purposes and working capital. In consideration of the loan from Mr.
Lin, the Company's Board of Directors approved the issuance and delivery of a
one-year, non-interest bearing, convertible promissory note (the Original
Note) to Mr. Lin, in the principal amount of $5 million The note is due and
payable on January 14, 2011, and is convertible into shares of the Company's
common stock at a conversion price of $5.88 per share (the per share closing
price on the trading day prior to the delivery date of the Original Note).

On March 25, 2010, Mr. Lin surrendered the Original Note to the
Company and asked the Company to void and rescind the Original Note and issue a
replacement note (the New Note), in the principal amount of $6,000,000, to
reflect the principal amount of the Original Note as well as an additional loan
of $1,000,000 made to the Company on March 25, 2010. The New Note omits the
conversion feature that was contained in the Original Note and it is
non-interest bearing. The maturity date of the New Note is March 5, 2012 and the
Company may prepay all or any part of the amounts outstanding under this Note at
any time before the maturity date without the express written consent of Mr.
Lin. On April 7, 2010, the Company repaid the additional loan of $1,000,000
included in the New Note.

In accounting for the New Note, the Company accrues an interest
expense at an interest rate of 5% per annum, which is the market interest rate
for USD denominated 2-year loans in China. The imputed interests for the three
months ended March 31, 2011 is $62,500 and is recognized as capital contribution
by the shareholder.

(b) Revenue - related party

Amounts earned from Yili and Kewen during the three months
ended March 31, 2011 and 2010 were as follows:

Three Months

Three Months

Ended March

Ended March

31, 2011

31, 2010

(Unaudited)

(Unaudited)

Revenue

$

14,079

$

24,892

Cost of sales

-

(13,465

)

Gross profit

14,079

11,427

(c) Rental expenses - related party

Rental expenses of renting buildings and offices from related
party for operation during the three months ended March 31, 2011 and 2010 were
approximately $57,000 and zero, respectively.

As of March 31, 2011 and December 31, 2010, long-term
investments consist of:

March 31,

December 31,

2011

2010

(Unaudited)

Tianhe Navigation and Communication
Technology Co., Ltd. ("Tianhe")

$

1,469,383

$

2,006,802

Tianditu Co., Ltd

1,221,600

1,213,600

Xiamen Yili Geo Information
Technology Co., Ltd. ("Yili")

76,350

75,850

$

2,767,333

$

3,296,252

Geo holds a 20% ownership interest in Tianhe. Although Geo owns
20% of Tianhe, Geos management does not have the ability to exercise
significant influence over operating and financial policies of Tianhe due to the
following factors:

a. The Company and Geo do not participate in the policy making,
operations, or financial processes of Tianhe; b. There are no intercompany
transactions between the Company or Geo and Tianhe; c. There is no interchange
of managerial personnel; d. The Company and Geo do not nominate or hold a board
position at Tianhe; and e. There is no technological or financial dependence
between the Company or Geo and Tianhe.

As at December 31, 2010, management determined that there was
an other-than-temporary impairment in the value of its investment in Tianhe and
recorded an impairment loss of approximately $855,000. As at March 31, 2011, the
management reassessed the possible impairment to the investment to Tianhe and
determined that there was an other-than-temporary impairment in the value of its
investment in Tianhe and recorded an impairment loss of approximately
$549,000.

As of March 31, 20110 and December 31, 2010, property, plant
and equipment consist of:

March 31

December 31

2011

2010

(Unaudited)

Office building

$

7,638,422

$

7,559,941

Plant and Machinery

28,359,121

27,900,717

Electronic equipment, furniture and
fixtures

12,009,167

12,045,103

Motor vehicles

1,239,163

1,102,159

Purchased software

52,146,028

48,814,198

Total

101,391,901

97,422,118

Less: accumulated depreciation

(20,403,511

)

(18,073,235

)

$

80,988,390

$

79,348,883

Depreciation expense for the three months ended March 31, 2011
and 2010 was approximately $2,472,000 and $1,524,000, respectively.

10. LAND USE RIGHTS AND INTANGIBLE ASSETS

(a) Deposits for purchase of land use rights

As of March 31, 2011, deposits for purchase of land use rights
represent deposit for purchase of land use rights in Dongguan City of
approximately $18.3 million (RMB 119.96 million) by IST, and additional land
premium paid for increase of plot ratios under existing land use rights in
Fuyong County of Shenzhen of approximately $8.4 million (RMB 55.16 million) by
Huipu.

(b) Land use rights

As of March 31, 2011 and December 31, 2010, land use rights
consist of:

March 31

December 31

2011

2010

(Unaudited)

Land use rights

$

1,992,918

$

1,979,867

Less: accumulated amortization

(61,937

)

(50,673

)

Land use rights, net

$

1,930,981

$

1,929,194

Amortization expense for the three months ended March 31, 2011
and 2010 was $11,000 and $12,000, respectively.

Estimated amortization for the next five years and thereafter
is as follows:

As of March 31, 2011 and December 31, 2010, intangible assets
consist of:

March 31

December 31

2011

2010

(Unaudited)

Software and software development
costs

$

7,824,695

$

7,333,720

Technology

7,485,201

7,436,182

Trademarks

4,319,883

4,291,593

Customer base

306,927

304,917

Sub-Total

19,936,706

19,366,412

Less: accumulated amortization

(6,125,114

)

(5,641,138

)

Intangible assets, net

$

13,811,592

$

13,725,274

Amortization expense for the three months ended March 31, 2011
and 2010, was approximately $445,000 and $500,000, respectively. Estimated
amortization for the next five years and thereafter is as follows:

Remainder of 2011

$

1,227,437

2012

1,947,068

2013

1,490,535

2014

1,219,069

2015

1,023,253

Thereafter

6,904,230

Total

$

13,811,592

11. BANK LOANS

(a) Short-term bank loans

March 31,

December 31,

2011

2010

(Unaudited)

Secured short-term
loans(1)

$

33,162,914

$

33,051,066

Add: Amounts due within one year under long-term
loan contracts

6,509,918

2,275,500

Total short-term bank loans

$

39,672,832

$

35,326,566

(1) Detailed information of secured short-term loan
balances as at 31 March 2011 and 31 December 2010 were as follows:

March 31,

December 31,

2011

2010

(Unaudited)

Collateralized by land and office
buildings

$

13,376,520

$

12,682,120

Secured by iASPEC's trade receivable

986,442

979,982

Secured by Huipu's trade receivable and
guaranteed by the Company and Huipus ex- shareholder

7,528,610

-

Secured by Bocom's trade receivable and guaranteed
by the Company.

169,460

395,552

Secured by Huipu's trade receivable
and guaranteed by the Company and Huipu.

On January 1, 2010, Huipu obtained a RMB 27,400,000
($4,183,980) long-term loan from PingAn Bank. The loan has a fixed interest rate
of 7.128% per annum and matures on November 16, 2011. Interest on the loan is
payable monthly, and principal is due at maturity.

On September 25, 2010, Huipu obtained an operational loan of
RMB 30,000,000 ($4,491,000) from Shenzhen Development Bank. At March 31, 2011,
the total outstanding balance of this long-term bank loan is RMB 22,500,000
($3,435,750).The loan has a float interest rate of contemporary RMB bank loan
per annum and matures on September 24, 2012. Interest on the loan is payable
monthly, and principal of RMB 1,250,000 ($187,000) is payable monthly through
the maturity date.

On February 21, 2011, ISSI obtained a HKD 1,380,000 ($177,192)
long-term loan from China Construction-Asia Hong Kong Bank. At March 31, 2011,
the total outstanding balance of this long-term loan is HKD 1,334,000
($171,285). The loan has a fixed rate of 3.75% per annum and matures on February
21, 2016. Interest on the loan is payable monthly, and principal of HKD 23,000
($2,953) is payable monthly through the maturity date.

12. INCOME TAXES

Pre-tax income for the three months ended March 31, 2011 and
2010 was taxable in the following jurisdictions:

Three months ended

Three months ended

March 31, 2011

March 31, 2010

(Unaudited)

(Unaudited)

PRC

$

7,980,445

$

7,188,003

Others

1,194,128

375,007

Total income before income taxes

$

9,174,573

$

7,563,010

United States

The Company was incorporated in Nevada and is subject to United
States of America tax law. It is management's intention to reinvest all the
income attributable to the Company earned by its operations outside the United
States of America (the U.S.). Accordingly, no U.S. corporate income taxes are
provided in these condensed consolidated financial statements.

BVI

Under the current laws of the BVI, dividends and capital gains
arising from the Company's investments in the BVI are not subject to income
taxes.

Effective June 13, 2007, the Board of Directors of the Company
adopted the China Information Security Technology, Inc. 2007 Equity Incentive
Plan (the Plan). The Plan provides for grants of stock options, stock
appreciation rights, performance units, restricted stock, restricted stock units
and performance shares. A total of 8,000,000 shares of the Companys common
stock may be issued pursuant to awards granted under the Plan.

On November 30, 2007, subject to ratification of the Plan by
the stockholders, the Company issued options to certain employees to purchase
490,000 shares of the Companys common stock, par value $0.01, with an exercise
price of $9.48 per share. The options were to vest on December 5, 2008 and
expire on December 5, 2011.

On March 3, 2008, the Company's Board of Directors voided and
canceled the grant of the stock options, and on March 20, 2008 approved the
grant of 400,000 shares of common stock to the employees. The fair value of the
Companys common stock based on quoted market prices on March 20, 2008 was $4.30
per share. Since the cancellation and grant of the replacement award occurred
concurrently, they were treated as a modification of the terms of the cancelled
award. 100,000 shares of common stock became vested on June 20, 2008 and
September 20, 2008, respectively, and the remaining 200,000 shares of common
stock were vested on December 20, 2008.

On February 8, 2011, the Company granted eligible employees a
total of 250,000 shares of the Company's common stock as compensation under the
Plan. The fair value of these shares of approximately $1.1 million, based on the
quoted market price, was accrued as of December 31, 2010 as the compensation was
for services provided on 2010.

As of March 31, 2011, there was no unrecognized compensation
expenses related to the non-vested options.

14. CONSOLIDATED SEGMENT DATA

Segment information is consistent with how management reviews
the businesses, makes investing and resource allocation decisions and assesses
operating performance. Transfers and sales between reportable segments, if any,
are recorded at cost.

In connection with the changes in the Company's business
portfolio and realignment of management, management conducted a review of its
operating business segments during the first quarter of 2011. The review
resulted in changing the segment reporting to Information Technology (IT), and
Display Technology (DT).

The Company's new segment reporting, which has been used for
all periods presented, follows the organizational structure as reflected in its
internal management reporting systems, which are the basis for assessing the
financial performance of the business segments and for allocating resources to
the business segments.

The Company reports financial and operating information in the
following two segments:

(a)

IT includes revenues from products and services
surrounding the Companys variety of software core competencies currently
primarily in Geographic Information Systems, Digital Public Security
Technologies and Hospital Information Systems. IT segment revenues are
generated from the sales of software and system integration services, as
well as hardware other than display products.

(b)

DT includes revenues from products and services
surrounding the Companys display technology core competencies currently
primarily in Geographic Information Systems, Digital Public Security
Technologies, Education and Media Solutions and consumer products. DT
segment revenues are generated from sales of hardware and total solutions
of hardware integrated with proprietary software and content, as well as
services.

iASPEC, Bocom, Zhongtian, and HPC lease offices, employee
dormitories and factory space in Shenzhen, Guangzhou, Beijing and Dongguan in
the PRC, under lease agreements that will expire on various dates through March
2013. Rent expense for the three months ended March 31, 2011 and 2010 was
approximately $104,500 and $84,800, respectively.

Future minimum lease payments under these lease agreements are
as follows:

Remainder of 2011

$

171,461

2012

31,352

2013

786

Total

$

203,599

The Company entered into several purchase commitments during
the period to purchase operating software and a database. The total contracted
price is approximately $2.6 million. As of March 31, 2011, the Company paid
deposits of approximately $1.3 million. The Company will pay the remaining
contracted amount 90 days subsequent to final testing of the software.

On July 9, 2010, the Company entered into an agreement with the
municipal government of Dongguan City, to purchase a land use right for a land
of 101,764 square meters at a consideration of approximately $23.5 million (RMB
153.6 million) to be paid in cash in installments. As of March, 31, 2011, the
Company paid deposits of approximately $18.3 million (RMB 119.96 million). The
Company will pay the remaining contracted amount within year 2011.

Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company extends credit to its customers in the normal course of business and
generally does not require collateral. As a result, management performs ongoing
credit evaluations, and the Company maintains an allowance for potential credit
losses based upon its loss history and its aging analysis. The allowance for
doubtful accounts $5,302,000 at March 31, 2011 and $6,073,000 at December 31,
2010 is the Company's best estimate of the amount of probable credit losses in
existing accounts receivable.

Management reviews the allowance for doubtful accounts each
reporting period based on a detailed analysis of accounts receivable. In the
analysis, management primarily considers the age of the customer's receivable
and also considers the creditworthiness of the customer, the economic conditions
of the customer's industry, and general economic conditions and trends, among
other factors. If any of these factors change, the Company may also change its
original estimates, which could impact the level of the Company's future
allowance for doubtful accounts. If judgments regarding the collectability of
accounts receivables were incorrect, adjustments to the allowance may be
required, which would reduce profitability. Since the Company's accounts
receivables are often concentrated in a relatively few number of customers, a
significant change in the liquidity or financial position of any one of these
customers could have a material adverse effect on the Company's financial
statements.

For the three months ended March 31, 2011, the Company had one
customer that accounted for approximately 12% of its third-party revenue and no
other customers accounted for greater than 10% of third-party revenue. For the
three-month period ended March 31, 2010, the Company had one customer that
accounted for approximately 11% of its third-party revenue and no other
customers accounted for greater than 10% of third-party revenue.

At March 31, 2011, accounts receivables were due from 331
customers. Of these, no customers accounted for over 10% of the total accounts
receivable. At March 31, 2010, accounts receivables were due from 396 customers
and no customers accounted for over 10% of the total accounts receivable

In addition to historical information, this report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. We use words such as believe, expect, anticipate, project,
target, plan, optimistic, intend, aim, will or similar expressions
which are intended to identify forward-looking statements. Such statements
include, among others, those concerning market and industry segment growth and
demand and acceptance of new and existing products; any projections of sales,
earnings, revenue, margins or other financial items; any statements of the
plans, strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; as well as all
assumptions, expectations, predictions, intentions or beliefs about future
events. You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, including
those identified in Item 1A, Risk Factors described in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2010, as well as assumptions,
which, if they were to ever materialize or prove incorrect, could cause the
results of the Company to differ materially from those expressed or implied by
such forward-looking statements.

Readers are urged to carefully review and consider the various
disclosures made by us in this report and our other filings with the SEC. These
reports attempt to advise interested parties of the risks and factors that may
affect our business, financial condition and results of operations and
prospects. The forward-looking statements made in this report speak only as of
the date hereof and we disclaim any obligation, except as required by law, to
provide updates, revisions or amendments to any forward-looking statements to
reflect changes in our expectations or future events.

Except as otherwise indicated by the context and for the
purposes of this report only, references in this report to:

CNIT, we, us, or our and the Company are to the combined
business of China Information Technology, Inc. and its consolidated
subsidiaries, CITH, IST, ISSI, ISS, ISIID, Bocom, Kwong Tai, Zhongtian, HPC,
Huipu, HPC Intl; and iASPEC, to whose operations we succeeded on October 9,
2006 and who became our variable interest entity effective July 1, 2007, and
its 52.54% majority owned subsidiary, Geo;

We are a leading provider of information and display
technologies in the PRC. We provide a broad portfolio of software, hardware and
fully integrated solutions to customers in a variety of technology sectors
including Geographic Information Systems (GIS), Digital Public Security
Technologies (DPST), Hospital Information Systems (DHIS), Education and Media
and consumers.

We were founded in 1993 and are headquartered in Shenzhen,
China. As of March 31, 2011, we had more than 1,350 employees and 27 sales
offices nationwide.

Our customers have historically been mostly public sector
entities that use our products and services to improve the service quality and
management level and efficiency of public security, traffic control, fire
control, medical rescue, border control, surveying and mapping as well as
healthcare management. Our typical customers include some of the most important
governmental departments in China, including the Ministry of Public Security,
the State Bureau of Surveying and Mapping, the State Grid Corporation, the
public security, fire fighting, traffic and police departments of several
provinces, the Shenzhen General Station of Exit and Entry Frontier Inspection,
and several provincial personnel, urban planning, civil administration, land
resource, and mapping and surveying bureaus. Over the past several years, we
have diversified our customer base beyond our local reach. In the future, we
expect to continually expand our market and product offerings in the public and
private sectors, through geographic expansion and enhancement of our technical
capabilities.

We generate revenues through the sale of our software and
hardware products, through our fully integrated total solutions, and through the
provision of related support services. A significant portion of our operations
are conducted through iASPEC, our variable interest entity. iASPEC is a PRC
domestic company owned by Jiang Huai Lin, our Chairman and Chief Executive
Officer, who is a PRC citizen and resident. iASPEC is able to obtain
governmental licenses that are restricted to PRC entities that have no foreign
ownership. These licenses allow iASPEC to perform Police-use Geographic
Information Systems, or PGIS, services for PRC governmental customers. Under our
Amended and Restated Management Services Agreement among our subsidiary, IST,
iASPEC and Mr. Lin, IST is entitled to receive 95% of the net received profit of
iASPEC during the term of the Agreement, less costs and expenses related to
sales and operations, and accrued but uncollected accounts receivable. During
the three months ended March 31, 2011, $12.61 million, or 46.81% of our revenue,
was generated under this exclusive commercial arrangement with iASPEC.

We continued to experience strong demand for our products and
services during the three months ended March 31, 2011, which resulted in growth
in our revenue and net income. The following are some financial highlights for
the first quarter:

Revenue: Revenue increased $1.64 million, or 6.5%, to $26.95
million for the three months ended March 31, 2011, from $25.31 million for the
same period in 2010.

Gross Profit: Gross profit increased $2.54 million, or
22.82%, to $13.65 million for the three months ended March 31, 2011, from
$11.12 million for the same period in 2010.

Income from operations: Income from operations increased
$2.35 million, or 35.83%, to $8.92 million for the three months ended March
31, 2011, from $6.56 million for the same period last year.

Net income attributable to the Company: Net income
attributable to the Company was $8.22 million for the three months ended March
31, 2011, an increase of $1.94 million, or 30.91%, from $6.28 million for the
same period in 2010.

Fully diluted net income per share: Fully diluted net income
per share was $0.16 for the three months ended March 31, 2011, as compared to
$0.12 for the same period last year.

As at March 31, 2011, the total of our contract backlog was
approximately $37.93 million.

Business Segment Information

Segment information is consistent with how management reviews
the businesses, makes investing and resource allocation decisions and assesses
operating performance. Transfers and sales between reportable segments, if any,
are recorded at cost.

22

Our segment reporting follows the organizational structure as
reflected in our internal management reporting systems, which are the basis for
assessing the financial performance of the business segments and for allocating
resources to the business segments.

We report financial and operating information in the following
two segments:

The following tables set forth key components of our results of
operations for the periods indicated, both in dollars and as a percentage of
sales revenue and key components of our revenue for the periods indicated in
dollars.

Comparison of Three Months Ended March 31, 2011 and March
31, 2010

(All amounts, other than percentages, in U.S. dollars)

2011

2010

Period-over-period

Increase (Decrease)

% of

% of

Amount

Revenue

Amount

Revenue

Amount

%

Revenue

$

26,948,748

100.00%

$

25,305,107

100.00%

$

1,643,641

6.50%

Costs of revenue

13,293,908

49.33%

14,187,654

56.07%

(893,746

)

-6.30%

Gross Profit

13,654,840

50.67%

11,117,453

43.93%

2,537,387

,22.82%

Administrative expenses

(2,504,307

)

-9.29%

(2,770,031

)

-10.95%

265,724

-9.59%

Research and development expenses

(733,330

)

-2.72%

(569,431

)

-2.25%

(163,899

)

28.78%

Selling expenses

(1,502,150

)

-5.57%

(1,214,562

)

-4.80%

(287,588

)

23.68%

Income from operations

8,915,053

33.08%

6,563,429

25.94%

2,351,624

35.83%

Subsidy income

30,440

0.11%

162,782

0.64%

(132,342

)

-81.30%

Other income, net

833,780

3.09%

966,799

3.82%

(133,019

)

-13.76%

Interest income

95,006

0.35%

18,891

0.07%

76,115

402.92%

Interest expenses

(699,706

)

-2.60%

(148,891

)

-0.59%

(550,815

)

369.95%

Income before Income Taxes

9,174,573

34.04%

7,563,010

29.89%

1,611,563

21.31%

Income tax expense

(1,080,518

)

-4.01%

(1,171,083

)

-4.63%

90,565

-7.73%

Net Income

8,094,055

30.03%

6,391,927

25.26%

1,702,128

26.63%

Less Net loss/(income) Attributable to NCI

128,278

0.48%

(110,819

)

-0.44%

239,097

-215.75%

Net Income Attributable toCNIT

$

8,222,333

30.51%

$

6,281,108

24.82%

$

1,941,225

30.91%

Revenue. Our revenue is generated from the sales
of our software and hardware products, our fully integrated total solutions, and
the related after-sales services. For the three months ended March 31, 2011, our
revenue was $26.95 million, compared to $25.31 million for the three months
ended March 31, 2010, an increase of $1.64 million, or 6.5%. Such increase was
primarily due to the strong demand of system integration solutions for the
Shenzhen Summer Universiade to be held in Shenzhen in August 2011, as well as the strong growth
of display products.

23

Product sales increased by $1.66 million, or 26.13%, for the
three months ended March 31, 2011, as compared to $6.35 million in the same
period of 2010. Product sales constituted 29.71% of total revenue during the
current period, as compared to 25.09% during the same period in the prior year
as a result of our efforts to grow our display technology solutions.

Software sales decreased by 8.48% to 13.89 million for the
three months ended March 31, 2011, from $15.18 million for the three months
ended March 31, 2010. Software sales constituted 51.55% of our total revenue,
which decreased from 59.98% during the same period in the prior year. Such
decline is a reflection of our decision to be more selective with our order
acceptance in
an effort to improve the quality of earnings.

Sales of system integration services increased by 76.75% for
the three months ended March 31, 2011, as compared to the same period of 2010.
As a percentage of revenue, it increased from 11% during the three months ended
March 31, 2010 to 18.26% during the current quarter. Such growth primarily
resulted from the strong demand of system integration solutions for the Shenzhen Summer
Universiade to be held in August 2011.

Other revenue decreased by 86.96%, from $0.99 million in the
three months ended March 31, 2010 to $0.13 million in the same period of 2011.
Other revenue was derived from maintenance services during the current period
while during the three months ended March 31, 2010, we also generated royalty
income.

The following table shows our revenue by categories:

(Unaudited: All amounts, other than percentages, in U.S.
dollars)

Table 1

Three months Ended March
31, 2011

Three months Ended March
31, 2010

Revenue

% of

Gross

Revenue

% of

Gross

Revenue

Margin

Revenue

Margin

Revenue - Products

$

8,006,993

29.71%

27.44%

$

6,347,970

25.09%

17.45%

Revenue - Software

13,891,525

51.55%

69.41%

15,178,632

59.98%

57.83%

Revenue - System
integration

4,920,500

18.26%

36.12%

2,783,883

11.00%

11.07%

Revenue - Others

129,730

0.48%

29.76%

994,622

3.93%

92.96%

Total Revenue

$

26,948,748

100.00%

50.67%

$

25,305,107

100.00%

43.93%

Revenue breakdown by segments is as follows:

(Unaudited: All amounts, other than percentages, in U.S.
dollars)

Table 2

Three Months Ended March
31, 2011

Three Months Ended March
31, 2010

Revenue

% of

Cost

Gross

Revenue

% of

Cost

Gross

Revenue

Margin

Revenue

Margin

IT Segment

$

18,978,749

70.43%

7,483,885

60.57%

$

19,206,641

75.90%

9,719,833

49.39%

DT Segment

7,969,999

29.57%

5,810,023

27.10%

6,098,466

24.10%

4,467,821

26.74%

Total

$

26,948,748

100.00%

13,293,908

50.67%

$

25,305,107

100.00%

14,187,654

43.93%

The revenue increase of our DT segment and the decline in
revenue from our IT segment reflect two initiatives we are taking in fiscal year
2011. One initiative is to grow our DT solutions as the broader market starts to
demand such previously specialized solutions and the other initiative is to be
more selective with our acceptance of orders in an effort to improve the quality
of earnings.

Cost of revenue and gross profit. As indicated in
the table above, our cost of revenues decreased $0.89 million, or 6.3%, to
$13.29 million, for the three months ended March 31, 2011, from $14.19 million
for the three months ended March 31, 2010. As a percentage of revenues, our cost
of revenue decreased to 49.33% during the three months ended March 31, 2011, from 56.07% in the same period of 2010. As a result,
gross margin was 50.67% for the three months ended March 31, 2011, an increase
of 674 basis points from 43.93% in the same period of 2010.

24

As shown in Table 1 above, the improvement in gross profit
margin was experienced through all of the main categories as a result of our
effort to improve our quality of earnings. Such improvement was partially offset
by the decrease in the weight of software revenues as we became more selective
with the profitability and accounts receivable turnover of software projects.

Administrative expenses. Administrative expenses
consist primarily of compensation and benefits to our general management,
finance and administrative staff, professional advisor fees, audit fees and
other expenses incurred in connection with general operations. Our
administrative expenses decreased by $0.27 million, or 9.59%, to $2.50 million
for the three months ended March 31, 2011, from $2.77 million in the same period
of 2010. Such a decrease was due to our cost control measures, including a
reduction of our staff.

Research and development expenses. Research and
development expenses consist primarily of personnel-related expenses, as well as
costs associated with new software and hardware development and enhancement.
Research and development expenses increased by $0.16 million, or 28.78%, to
$0.73 million for the three months ended March 31, 2011, from $0.57 million in
the same period of 2010. As a percentage of revenue, research and development
expenses accounts for approximately 2.72% of the total revenue for the three
months ended March 31, 2011, compared with 2.25% of total revenue for the same
period in 2010. Such an increase reflects our efforts in developing DT solutions
and improving their profitability.

Selling expenses. Selling expenses consist
primarily of compensation and benefits to our sales and marketing staff, sales
and after-sales traveling cost, and other sales related costs. Our selling
expenses increased $0.29 million, or 23.68%, to $1.5 million for the three
months ended March 31, 2011, from $1.21 million in the corresponding period of
2010. Such increase was due to our heightened efforts in national market
expansion which lead to higher travel and telecommunication expenses as well as
increased total compensation to the sales and marketing staff.

Subsidy Income. For the three months ended March
31, 2011 and 2010, in connection with research and development activities in a
designated locale, we received approximately $30,440 and $162,782, respectively
as a subsidy from the local governmental agency in China.

Other income, net.A key component of
other income in the net amount of $0.83 million for the three months ended March
31, 2011, was mainly a gain of $1.18 million. This gain resulted from the
decrease of fair value of the liability associated with the contingent
consideration for the HPC acquisition during the period. As our stock price
declined during the period, the contingent liability, which is based on our
stock price, decreased in fair value. Such a decrease in contingent liability
contributed to our other income.

Income tax expense. Income tax expense for the
three months ended March 31, 2011 was $1.08 million, as compared with $1.17
million for the same period in 2010. The decrease was mainly due to the
reduction of our effective income tax rate from 15.48% in the three months ended
March 31, 2010, to 11.78% in the three months ended March 31, 2011, as all of our
operating entities enjoy the National High Tech status which lowered their
official tax rates starting this year.

Non-controlling interest. Non-controlling
interest of ($128,300) for the three months ended March 31, 2011 represents the
$183,600 fee retained by iASPEC under the Management Service Agreement and
($311,900) of Geos loss to its 47.46% non-controlling interest.

Net income attributable to the Company. As a
result of the factors described above, net income increased $1.94 million, or
30.91%, to $8.22 million during the three months ended March 31, 2011, from
$6.28 million for the same period in 2010.

Liquidity and Capital Resources

As of March 31, 2011, we had cash and cash equivalents of
$15.68 million. The following table summarizes the key cash flow metrics from
our condensed consolidated statements of cash flows for the three months ended
March 31, 2011 and 2010.

Net cash provided by operating activities was $1.90 million for
the three months ended March 31, 2011, a significant improvement from $11.34
million net cash used in operating activities for the same period of 2010. Such
an increase was primarily attributed to the improvement of overall working
capital turnover, most noticeably improvements in cash flow from accounts
receivable as a result of our efforts to improve the quality of earnings.

Net cash used in investing activities was $3.0 million for the
three months ended March 31, 2011, as compared to $4.23 million net cash used in
investing activities for the same period of 2010. Such a decrease was primarily
due to the reduction in our deposits for software purchases during the 2011
period.

Net cash used by financing activities was $1.46 million during
the three months ended March 31, 2011, as compared to $13.02 million generated
from financing activities during the same period of 2010. The change was
mainly attributable to the absence of funds raised from issue of common stock
and shareholders loan during the same period for 2010.

There have been no changes in our critical accounting policies
from those disclosed in under Item 7, Management's Discussion and Analysis of
Results of Operations and Financial Condition in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2010.

The first quarter of the calendar year is typically the slowest
season of the year due to the Chinese New Year holiday. During this period,
accounts receivable collection is very slow and we also need to prepare for
upcoming busier seasons by making payments for inventory.

We deposit surplus funds with Chinese banks earning daily
interest. We do not invest in any instruments for trading purposes. Most of our
outstanding debt instruments carry fixed rates of interest. Our operations
generally are not directly sensitive to fluctuations in interest rates. The
amount of long-term debt outstanding as of March 31, 2011 and December 31,2010
was $1.28 million and $5.86 million, respectively. A hypothetical 1.0% increase
in the annual interest rates for all of our credit facilities under which we had
outstanding borrowings at March 31, 2011, would decrease net income before
provision for income taxes by approximately $61,000, or less than 1% for the
three months ended March 31, 2011. Management monitors the banks prime rates in
conjunction with our cash requirements to determine the appropriate level of
debt balances relative to other sources of funds. We have not entered into any
hedging transactions in an effort to reduce our exposure to interest rate
risk.

While our reporting currency is the U.S. dollars, substantially
all of our consolidated revenues and consolidated costs and expenses are
denominated in RMB. Substantially all of our assets are denominated in RMB
except for cash. As a result, we are exposed to foreign exchange risk as our revenues and
results of operations may be affected by fluctuations in the exchange rate
between U.S. dollars and RMB. If the RMB depreciates against the U.S. dollars,
the value of our RMB revenues, earnings and assets as expressed in our U.S.
dollars financial statements will decline. Assets and liabilities are translated
at exchange rates at the balance sheet dates and revenue and expenses are
translated at the average exchange rates and equity is translated at historical
exchange rates. Any resulting translation adjustments are not included in
determining net income but are included in determining other comprehensive
income, a component of equity. An average appreciation (depreciation) of the RMB
against the U.S. dollars of 5% would increase (decrease) our comprehensive
income by $13.63 million based on our outstanding revenues, costs and expenses,
assets and liabilities denominated in RMB as of March 31, 2011. As of March 31,
2011, our accumulated other comprehensive income was $12.85 million. We have not
entered into any hedging transactions in an effort to reduce our exposure to
foreign exchange risk.

The value of RMB against the U.S. dollars and other currencies
is affected by, among other things, changes in Chinas political and economic
conditions. Since July 2005, RMB has not been pegged to the U.S. dollars.
Although the Peoples Bank of China regularly intervenes in the foreign exchange
market to prevent significant short-term fluctuations in the exchange rate, RMB
may appreciate or depreciate significantly in value against the U.S. dollars in
the medium to long term. Moreover, it is possible that in the future, PRC
authorities may lift restrictions on fluctuations in RMB exchange rate and
lessen intervention in the foreign exchange market.

Inflationary factors such as increases in the cost of our
product and overhead costs may adversely affect our operating results. Although
we do not believe that inflation has had a material impact on our financial
position or results of operations to date, a high rate of inflation in the
future may have an adverse effect on our ability to maintain current levels of
gross margin and selling, general and administrative expenses as a percentage of
net revenues if the selling prices of our products do not increase with these
increased costs.

We maintain disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer
to controls and other procedures designed to ensure that information required to
be disclosed in the reports we file or submit under the Securities Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.

As required by Rule 13a-15(e), our management has carried out
an evaluation, with the participation and under the supervision of our Chief
Executive Officer, Mr. Jiang Huai Lin and our Chief Financial Officer, Ms.
Jackie You Kazmerzak, of the effectiveness of the design and operation of our
disclosure controls and procedures, as of March 31, 2011. Based upon, and as of
the date of this evaluation, Mr. Lin and Ms. Kazmerzak, determined that, as of
March 31, 2011, and as of the date of this report, our disclosure controls and
procedures were effective.

There were no changes in our internal controls over financial
reporting during the first quarter of fiscal 2011 that have materially affected,
or are reasonably likely to materially affect our internal control over
financial reporting.

From time to time, we may become involved in various lawsuits
and legal proceedings, which arise, in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these,
or other matters, may arise from time to time that may harm our business. We are
currently not aware of any such legal proceedings or claims that we believe will
have a material adverse affect on our business, financial condition or operating
results.

We have no information to disclose that was required to be in a
report on Form 8-K during the period covered by this report, but was not
reported. There have been no material changes to the procedures by which
security holders may recommend nominees to our board of directors.